China slowdown not a threat to LatAm, experts say

China’s slowing growth and an end to the commodities super-cycle will not undermine its trade dynamic with Latin America, Chinese officials told a LatinFinance forum in Beijing

Lima's Port of Callao
Source: Daniel Angello

Leading Chinese officials have dismissed dire predictions of
the impact on Latin exports and economies of
China’s slowing growth and an end to the
commodities super-cycle, arguing instead that a "rebalancing"
will lead to fresh trade an investment opportunities.

Addressing a LatinFinance forum in Beijing Tuesday,
experts insisted that a drop in China’s growth
rate from 10% to 7% of GDP – a development that has
alarmed many Latin commodity exporters – will not
undermine the trade dynamic between the two regions, fuelled
over the past decade by China’s rapid
expansion.

Zhu Hongjie, vice president of the Export-Import Bank of
China, said: "Both [China and Latin America] face the pressure
of slowing growth in the world, and both need to transform
their economies and explore new opportunities."

As China rebalances its growth model to favor domestic
consumption-led growth, new opportunities will arise for Latin
America to provide products and services to the country,
leading to trade that is "more balanced and stable," Zhu told
the LatinFinance Latin America China Investors
Forum.

The two regions must "standardize" their relationship, Zhu
said, with more Chinese investment in equities and debt
investment that go beyond the buyer and seller credits and
export facilities that have so far characterized the
relationship.

Trade volume between LatAm and China stood at $261 billion
last year, Zhu said. Though slowing, the Chinese economy is
still growing at a healthy rate and state-led companies will
invest $500 billion globally over the next five years, he
added. Chinese FDI in Latin America reached $15 billion in
2012.

The comments came as new data showed a weakening in global
trade was already taking a toll on Latin America. The Economic
Commission for Latin America and the Caribbean (ECLAC) said in
a report Tuesday that regional export values were expected to
grow by just 1.5% in 2013, roughly on par with the 1.4% growth
the year before. At 2.5% in 2013, the report noted that world
trade volumes would expand more slowly than global GDP for a
second year running – a development not seen since the
1980s.

Investors nevertheless sounded an upbeat note in Beijing on
continued Chinese demand for natural resources. Liu Juming,
deputy head of overseas investment for Citic-Prudential Fund
Management said: "Economic growth is not as fast as before, but
it remains above a certain standard. It is still at a very high
level. I am very confident in the demand for raw
materials."

Cheng Zeyu, deputy general manager for risk management at
the Export-Import Bank of China, said that although the
commodities super-cylce had turned, China’s
baseline economic expansion was still provided formidable
support for natural resources.

"There is not a commodity super-cycle anymore, but if we
take a look at China's economic volume – even though
growth is decreasing from 10% to 7% – there is a huge
basis," Cheng said. "The demand from commodities from Latin
America is still very prosperous."

Bernardo Guillamon, manager of the office of outreach and
partnerships at the IDB, said trade would become increasingly
diversified, with more opportunities for value-added exports
beyond raw materials. This would brighten prospects for
mid-sized companies, he added.

The Mexican growth story and potential reform leaves room
for more trade between China and Mexico, Guillamon said.
Central America should expand, too, following the lead of Costa
Rica.

"In the last 10 years China has been a buyer of commodities,
but now because of the change in China's industries, we will
need other products" Cheng said.

A consensus emerged among experts that the relationship
between China and Latin America had matured in recent years,
with far deeper understanding of cultural aspects of trade and
investment. But they acknowledged that a lack of trust had been
a challenge, given concerns in Latin America over
China’s role as a raw materials extractor rather
than a true business partner.

Zhu said however that rather than posing a threat to the
region, China had been important for Latin American growth.
With complimentary economies, a deepening of trade ties will
bring benefits for both regions, he said.

"There is no fundamental conflict of interest between China
and Latin America," Zhu said. LF

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